- Online musical instruments seller warns on profits
- But net debt substantially reduced
- Return to ‘more profitable growth’ seen during FY24
Shares in Gear4music (G4M:AIM) crashed 7.5% lower to 81.5p after the online musical instruments and equipment retailer warned earnings for the year to March 2023 will come in shy of earlier expectations.
The year’s disappointing sales and profits outturn reflects weaker than predicted fourth quarter trading, notably during February and March, with high inflation continuing to squeeze consumer spending on discretionary items including musical instruments.
DISAPPOINTING NOISES AROUND EBITDA
In an unscheduled year-end update, the York-based keyboards, guitars and drum kits seller warned earnings before interest, tax, depreciation and amortisation (EBITDA) for the year just ended is expected to land in the £7.3 million to £7.7 million range.
That is down from £11 million last year and well below the £9 million Singer Capital Markets was looking for.
Guidance for a year-on-year gross margin decline from 27.8% to 25.7% reflects efforts by the ukuleles-to-DJ equipment seller to reduce high stock levels during ‘a challenging period for discretionary retail’.
Gear4music flagged a modest 3% rise in total sales to £152 million for the year to March 2023, with UK sales down by a better-than-feared 1% to £82 million and European and Rest of the World revenues up 8% at £70 million, lower-than-expected against a tougher backdrop.
The company lauded encouraging early progress with its latest growth initiative, a first move into pre-owned products through a proprietary second hand trade-in system that ‘simplifies the process for consumers of selling their equipment, providing instant trade-in prices across thousands of products’.
As Gear4music scales up the number of products available for trade-in and launches the system across Europe, it is confident the platform will ‘help to support a return to stronger growth in the business’.
WHAT DID THE CEO SAY?
CEO Andrew Wass commented: ‘Whilst challenging economic conditions meant we were not able to grow revenues and profits as intended during FY23, we are pleased to have made good progress with our objective of significantly reducing the group’s net debt position, from £24.2 million a year ago, to £14.5 million as at 31 March 2023.’
Wass added: ‘Although the current economic challenges are reflected in our FY23 results, we have taken decisive actions to ensure the group continues to be appropriately configured and well-funded.
‘As FY24 progresses, we expect to make further progress in reducing our net debt, and believe we are well positioned to return to profitable growth.’
